Loonie dives below 90 cents after BoC throws currency ‘under the bus’

The Canadian dollar has fallen 4 per cent in January as international investors move out of the loonie and into currencies they think will hold their value or climb higher -- like the U.S. dollar. Getty Images

The Canadian dollar continued to lost steam Thursday morning, diving below 90 cents US, to 89.68 – touching four-year lows.

The currency has beat a steady retreat against the U.S. greenback in January as foreign-exchange investors dump loonies in favour of other currencies deemed more likely to hold value or climb, namely the U.S. dollar.

The loonie’s slide stems largely from a weaker economic outlook this year compared to the U.S. economy as Canadians jostle with record debt levels and a potential slowdown in the housing market – a sector that’s been a major source of growth for Canada in recent years.

The loonie has lost 4 per cent of its value this month, adding to a 7 per cent decline through 2013.

READ MORE: Loonie’s slide crashes Canada’s cross border shopping spree

But a lower loonie may be exactly the antidote for Canada at the moment, experts say. A lower currency would aid exports as well as deter Canadian consumers from spending more money abroad because of an elevated currency.

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About $20-billion is spent annually now by Canadians shoppers in the United States, a figure some experts say may actually only be half the real amount if more accurate records were maintained.

The Bank of Canada has signaled it won’t be taking any actions against the falling dollar, experts say, hopeful that the decline will shift the burden of carrying growth onto exporters and away from consumers, which have powered growth by loading up on debt amid rock bottom interest rates.

The decline means however higher prices across a wide range of consumer goods, from gasoline to groceries. But with inflation, or price growth, diving below 1 percent – well below levels considered good for a healthy economy – in recent months, a falling dollar could help reapply some pressure, experts say.

“The Bank appears to have few qualms about tossing the strong loonie under the bus to achieve its inflation target,” said Sal Guatieri of BMO Capital Markets.

READ MORE: Complete coverage of the loonie’s nosedive 

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